kimmel accounting 4e powerpoint ch08 receivable
TRANSCRIPT
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REPORTING AND
ANALYZING
RECEIVABLES
Accounting, Fourth Edition
8
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1. Identify the different types of receivables.2. Explain how accounts receivable are recognized in the accounts.
3. Describe the methods used to account for bad debts.
. !ompute the interest on notes receivable.
". Describe the entries to record the disposition of notes receivable.
#. Explain the statement presentation of receivables.
$. Describe the principles of sound accounts receivable
management.
%. Identify ratios to analyze a company&s receivables.
'. Describe methods to accelerate the receipt of cash from
receivables.
Study Objectives
Study Objectives
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Types o!eceiv"b#es
Types o!eceiv"b#es
Accounts!eceiv"b#e
Accounts!eceiv"b#e
$otes!eceiv"b#e
$otes!eceiv"b#e
St"te%ent&resent"tion o!eceiv"b#es
St"te%ent&resent"tion o!eceiv"b#es
'"n"ging!eceiv"b#es
'"n"ging!eceiv"b#es
!eporting "nd An"#y(ing !eceiv"b#es
!eporting "nd An"#y(ing !eceiv"b#es
Accounts
receiv"b#e
$otes
receiv"b#e
Other
receiv"b#es
!ecogni(ing
"ccountsreceiv"b#e
)"#uing
"ccounts
receiv"b#e
*eter%ining
%"turity d"te
+o%puting
interest
!ecogni(ing
notes
receiv"b#e
)"#uing notes
receiv"b#e
*isposing o
notes
receiv"b#e
"#"nce
sheet "ndnotes
nco%e
st"te%ent
E.tending
credit
Est"b#ishing "
p"y%ent
period
'onitoring
co##ections
Ev"#u"ting
#i/uidity o
receiv"b#es
Acce#er"ting
c"sh receipts
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(mounts due from individuals and other companies that areexpected to be collected in cash.
(mounts owed by
customers thatresult from the saleof goods andservices.
Accounts!eceiv"b#e
Accounts!eceiv"b#e
Types o !eceiv"b#es
Types o !eceiv"b#es
SO 1 Identify the different types of receivables.
!laims for which
formal instrumentsof credit are issued
as proof of debt.
)*ontrade+
,interest- loans toofficers- advancesto employees- andincome taxes
refundable.
$otes!eceiv"b#e
$otes!eceiv"b#e
Other!eceiv"b#es
Other!eceiv"b#es
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(mounts due from individuals and other companies that areexpected to be collected in cash.
Types o !eceiv"b#es
Types o !eceiv"b#es
SO 1 Identify the different types of receivables.
##ustr"tion 8-1
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To "ccounting issues
15 !ecogni(ingaccounts receivable.
25 )"#uingaccounts receivable.
Accounts !eceiv"b#eAccounts !eceiv"b#e
SO 2 Explain how accounts receivable are recognized in the accounts.
Service org"ni("tion/ records a receivable when it
provides service on account. 'erch"ndiser/ records accounts receivable at the
point of sale of merchandise on account.
!ecogni(ing Accounts !eceiv"b#e
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##ustr"tion (ssume that 0ordache !o. on 0uly 1- 212- sellsmerchandise on account to olo !ompany for 1- terms
241- n43. repare the 5ournal entry to record this transaction
on the boo6s of 0ordache !o.
(ccounts receivable 1-6u#5 1
7ales revenue1-
Accounts !eceiv"b#eAccounts !eceiv"b#e
SO 2 Explain how accounts receivable are recognized in the accounts.
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##ustr"tion 8n 0uly "- olo returns merchandise worth 1to 0ordache !o.
7ales returns and allowances 16u#5 0
(ccounts receivable1
##ustr"tion 8n 0uly 11- 0ordache receives payment from
olo !ompany for the balance due.
!ash %%26u#5 11
7ales discounts ,' x .2 1%
(ccounts receivable'
Accounts !eceiv"b#eAccounts !eceiv"b#e
SO 2 Explain how accounts receivable are recognized in the accounts.
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)"#uing Accounts !eceiv"b#es
!urrent asset.
9aluation ,net realizable value.
9nco##ectib#e Accounts !eceiv"b#e
7ales on account raise the possibility of accounts not
being collected.
7eller records losses that result from extending credit as"d *ebts E.pense.
Accounts !eceiv"b#eAccounts !eceiv"b#e
SO 3 escribe the !ethods used to account for bad debts.
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A##o"nce 'ethod
:osses "re esti%"ted
:etter matching.
;eceivable stated at net
realizable value. ;e
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Accounting or A
=o "re these "ccounts presented on the "#"nce Sheet>=o "re these "ccounts presented on the "#"nce Sheet>
Accounts !eceiv"b#e A##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 0 20 End5
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Assets
+urrent Assets
+"sh ? 34
Accounts receiv"b#e, net o ?20 "##o"nce
or doubtu# "ccounts 40
nventory 812
&rep"ids @ 4
Tot"# current "ssets 1,3Fi.ed Assets
Oice e/uip%ent 0,7
Furniture i.tures ,
:ess Accu%u#"ted depreci"tion B3,30C
Tot"# i.ed "ssets 8,044
Tot"# Assets ?1,21
Assets
+urrent Assets
+"sh ? 34
Accounts receiv"b#e, net o ?20 "##o"nce
or doubtu# "ccounts 40
nventory 812
&rep"ids @ 4
Tot"# current "ssets 1,3Fi.ed Assets
Oice e/uip%ent 0,7
Furniture i.tures ,
:ess Accu%u#"ted depreci"tion B3,30C
Tot"# i.ed "ssets 8,044
Tot"# Assets ?1,21
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6ourn"# entry or credit s"#e o ?1>Accounts receiv"b#e 1
S"#es 1
6ourn"# entry or credit s"#e o ?1>
Accounts receiv"b#e 1
S"#es 1
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 0 20 End5
Accounting or A
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6ourn"# entry or credit s"#e o ?1>Accounts receiv"b#e 1
S"#es 1
6ourn"# entry or credit s"#e o ?1>
Accounts receiv"b#e 1
S"#es 1
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 20 End5
S"#e 1
Accounting or A
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+o##ected o ?333 on "ccount>+"sh 333
Accounts receiv"b#e 333
+o##ected o ?333 on "ccount>
+"sh 333
Accounts receiv"b#e 333
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 20 End5
S"#e 1
Accounting or A
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+o##ected o ?333 on "ccount>+"sh 333
Accounts receiv"b#e 333
+o##ected o ?333 on "ccount>
+"sh 333
Accounts receiv"b#e 333
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 2 20 End5
S"#e 1 333 +o##5
Accounting or A
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Adjust%ent o ?10 or esti%"ted "d-*ebts>"d debt e.pense 10
A##o"nce or *oubtu# Accounts 10
Adjust%ent o ?10 or esti%"ted "d-*ebts>
"d debt e.pense 10
A##o"nce or *oubtu# Accounts 10
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 2 20 End5
S"#e 1 333 +o##5
Accounting or A
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Adjust%ent o ?10 or esti%"ted "d-*ebts>"d debt e.pense 10
A##o"nce or *oubtu# Accounts 10
Adjust%ent o ?10 or esti%"ted "d-*ebts>
"d debt e.pense 10
A##o"nce or *oubtu# Accounts 10
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 2 4 End5
S"#e 1 333 +o##5 10 Est5
Accounting or A
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;rite-o o unco##ectib#e "ccounts or ?1>
A##o"nce or *oubtu# "ccounts 1
Accounts receiv"b#e 1
;rite-o o unco##ectib#e "ccounts or ?1>
A##o"nce or *oubtu# "ccounts 1
Accounts receiv"b#e 1
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 2 4 End5
S"#e 1 333 +o##5 10 Est5
Accounting or A
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;rite-o o unco##ectib#e "ccounts or ?1>
A##o"nce or *oubtu# "ccounts 1
Accounts receiv"b#e 1
;rite-o o unco##ectib#e "ccounts or ?1>
A##o"nce or *oubtu# "ccounts 1
Accounts receiv"b#e 1
Accounts !eceiv"b#eA##o"nce or*oubtu# Accounts
eg5 0 20 eg5
End5 20 3 End5
S"#e 1 333 +o##5 10 Est5
;
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Assets
+urrent Assets
+"sh ? 34
Accounts receiv"b#e, net o ?3 "##o"nce
or doubtu# "ccounts 22
nventory 812
&rep"ids @ 4
Tot"# current "ssets 1,420Fi.ed Assets
Oice e/uip%ent 0,7
Furniture i.tures ,
:ess Accu%u#"ted depreci"tion B3,30C
Tot"# i.ed "ssets 8,044
Tot"# Assets ? 7,77
Assets
+urrent Assets
+"sh ? 34
Accounts receiv"b#e, net o ?3 "##o"nce
or doubtu# "ccounts 22
nventory 812
&rep"ids @ 4
Tot"# current "ssets 1,420Fi.ed Assets
Oice e/uip%ent 0,7
Furniture i.tures ,
:ess Accu%u#"ted depreci"tion B3,30C
Tot"# i.ed "ssets 8,044
Tot"# Assets ? 7,77
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)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
A##o"nce 'ethod or 9nco##ectib#e Accounts
1. !ompanies esti%"teuncollectible accounts
receivable.
2. Debit "d *ebts E.penseand credit A##o"nceor *oubtu# Accounts,a contra/asset account.
3. !ompanies debit (llowance for Doubtful (ccounts
and credit (ccounts ;eceivable at the time thespecific account is ritten oas uncollectible.
SO 3 escribe the !ethods used to account for bad debts.
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##ustr"tion Aampson Burniture has credit sales of1-2- in 212- of which 2- remains uncollected at
December 31. Che credit manager estimates that 12- of
these sales will prove uncollectible.
)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
:ad debts expense 12-*ec5 31
(llowance for doubtful accounts 12-
SO 3 escribe the !ethods used to account for bad debts.
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)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
##ustr"tion 8-3resentation of allowancefor doubtful accounts
SO 3 escribe the !ethods used to account for bad debts.
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##ustr"tion Che vice/president of finance of Aampson Burniture on
?arch 1- 213- authorizes a write/off of the " balance owed by
;. (. >are. Che entry to record the write/off is@
)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
(llowance for doubtful accounts "'"r5 1
(ccounts receivable "
!ecording ;rite-O o "n 9nco##ectib#e Account
##ustr"tion 8-4
SO 3 escribe the !ethods used to account for bad debts.
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8-3
1
6u#y 1
##ustr"tion 8n 0uly 1- ;. (. >are pays the " amount that
Aampson Burniture had written off on ?arch 1. Aampson ma6es
these entries@
)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
(ccounts receivable "
(llowance for doubtful accounts "
!ecovery o "n 9nco##ectib#e Account
!ash "(ccounts receivable "
SO 3 escribe the !ethods used to account for bad debts.
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)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
nder the percent"ge o
receiv"b#esbasis-
management establishes apercentage relationship
between the amount of
receivables and expected
losses from uncollectible
accounts.
SO 3 escribe the !ethods used to account for bad debts.
Esti%"ting the A##o"nce
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##ustr"tion (ssume the unad5usted trial balance shows (llowance
for Doubtful (ccounts with a credit balance of "2%. repare the
ad5usting entry assuming 2-22% is the estimate of uncollectible
receivables from the aging schedule.
)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
:ad debts expense 1-$*ec5 31
(llowance for doubtful accounts 1-$
##ustr"tion 8-"d debts "ccounts"ter posting
Esti%"ting the A##o"nce
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)"#uing Accounts !eceiv"b#e)"#uing Accounts !eceiv"b#e
SO 3 escribe the !ethods used to account for bad debts.
##ustr"tion 8-8
$ote disc#osure o "ccounts receiv"b#e
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$otes !eceiv"b#e$otes !eceiv"b#e
!ompanies may grant credit in exchange for a promissorynote. ( pro%issory noteis a written promise to pay a
specified amount of money on demand or at a definite time.
romissory notes may be used
1. when individuals and companies lend or borrow money-
2. when amount of transaction and credit period exceed
normal limits- or
3. in settlement of accounts receivable.
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##ustr"tion 8-7
$otes !eceiv"b#e$otes !eceiv"b#e
Co the &"yee- the promissory note is a note receiv"b#e.Co the '"Der- the promissory note is a note p"y"b#e.
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8-38 SO " #o!pute the interest on notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
*ote expressed in terms of
?onths
Days
+o%puting nterest##ustr"tion 8-1
*eter%ining the '"turity *"te
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8-37 SO " #o!pute the interest on notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
;hen counting d"ys- o%itthe date the note is
issued- but inc#udethe due date.
##ustr"tion 8-11
+o%puting nterest
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8-4 SO " #o!pute the interest on notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
##ustr"tion :rent !ompany wrote a 1-- two/month- %
promissory note dated ?ay 1- to settle an open account.
repare entry would >ilma !ompany ma6es for the receipt of
the note.
*otes receivable 1-'"y 1
(ccounts receivable 1-
!ecogni(ing $otes !eceiv"b#e
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)"#uing $otes !eceiv"b#e
$otes !eceiv"b#e$otes !eceiv"b#e
;eport short/term notes receivable at their c"sh
BnetC re"#i("b#e v"#ue.
Estimation of cash realizable value and bad debtsexpense are done similarly to accounts receivable.
(llowance for Doubtful (ccounts is used.
SO " #o!pute the interest on notes receivable.
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*isposing o $otes !eceiv"b#e
SO $ escribe the entries to record the disposition of notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
1. *otes may be held to their maturity date.
2. ?a6er may default and payee must ma6e an
ad5ustment to the account.
3. Aolder speeds up conversion to cash by selling the
note receivable.
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8-44
=onor o $otes !eceiv"b#e
SO $ escribe the entries to record the disposition of notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
( note is honoredwhen its ma6er pays it in full at its
maturity date.
*ishonor o $otes !eceiv"b#e
( dishonored noteis not paid in full at maturity.Dishonored note receivable is no longer negotiable.
*isposing o $otes !eceiv"b#e
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8-40
##ustr"tion >older !o. lends Aigley Inc. 1- on 0une 1-
accepting a five/month- ' interest note. If >older presents the
note to Aigley Inc. on *ovember 1- the maturity date- >older&s
entry to record the collection is@
=onor o $otes !eceiv"b#e
SO $ escribe the entries to record the disposition of notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
!ash 1-3$"$ov5 1
*otes receivable 1-
Interest revenue 3$"
,1- x ' x "412 F 3$"
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8-4
##ustr"tion repare the entry >older&s would ma6e to
record the honoring of the Aigley note on *ovember 1.
SO $ escribe the entries to record the disposition of notes receivable.
$otes !eceiv"b#e$otes !eceiv"b#e
!ash 1-3$"$ov5 1
*otes receivable 1-
Interest receivable 3
Interest revenue $"
Accru"# o nterest
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8-48
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
SO % Explain the state!ent presentation of receivables.
##ustr"tion 8-13:alance sheet presentationof receivables
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8-47
'"n"ging !eceiv"b#es'"n"ging !eceiv"b#es
SO & escribe the principles of sound accounts receivable !anage!ent.
?anaging accounts receivable involves ive steps@
1. Determine to whom to extend credit.
2. Establish a payment period.
3. ?onitor collections.
. Evaluate the li
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8-01
'"n"ging !eceiv"b#es'"n"ging !eceiv"b#es
SO & escribe the principles of sound accounts receivable !anage!ent.
!ompanies should determine a re
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8-02
'"n"ging !eceiv"b#es'"n"ging !eceiv"b#es
SO & escribe the principles of sound accounts receivable !anage!ent.
!ompanies should prepare an accounts receivable
aging schedule at least monthly.
Creasurer should prepare a cash budget.
7ignificant concentrations of credit ris6 must be
discussed in the notes to its financial statements.
'onitoring +o##ections
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8-03
##ustr"tion 8-14E.cerpt ro% note onconcentr"tion o credit risD
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8-04
Ev"#u"ting :i/uidity o !eceiv"b#es
SO ' Identify ratios to analyze a co!pany(s receivables.
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
##ustr"tion 8-10
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8-00
Accounts !eceiv"b#e Turnover@
(ssess the li
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8-0
Acce#er"ting +"sh !eceipts
Three re"sonsfor the sale of receivables@
1. 7ize.
2. !ompanies may sell receivables because they may
be the only reasonable source of cash.
3. :illing and collection are often time/consuming and
costly.
SO ) escribe !ethods to accelerate the receipt of cash fro! receivables.
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
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8-0
$"tion"# +redit +"rd S"#es
Three p"rtiesinvolved when credit cards are used.
1. credit card issuer-
2. retailer- and
3. customer.
SO ) escribe !ethods to accelerate the receipt of cash fro! receivables.
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
Che retailer pays the credit card issuer a fee of 2 to ofthe invoice price for its services.
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8-07
S"#e o !eceiv"b#es to " F"ctor
##ustr"tion (ssume that Aendredon Burniture factors #- of
receivables to Bederal Bactors- Inc. Bederal Bactors assesses a
service charge of 2 of the amount of receivables sold.
SO ) escribe !ethods to accelerate the receipt of cash fro! receivables.
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
!ash "%%-7ervice charge expense 12-
(ccounts receivable #-
( "ctoris a finance company or ban6 that buys receivables from
businesses for a fee and then collects the payments directly from
the customers.
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8-
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8-1 SO ) escribe !ethods to accelerate the receipt of cash fro! receivables.
Fin"nci"# St"te%ent &resent"tionFin"nci"# St"te%ent &resent"tion
##ustr"tion 8-1'"n"ging receiv"b#es
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8-2
ey &oints
F!S re/uires th"t #o"ns "nd receiv"b#es be "ccounted or "t
"%orti(ed cost, "djusted or "##o"nces or doubtu# "ccounts5
F!S so%eti%es reers to these "##o"nces "s provisions5
A#though F!S i%p#ies th"t receiv"b#es ith dierent
ch"r"cteristics shou#d be reported sep"r"te#y, there is no
st"nd"rd th"t %"nd"tes this segreg"tion5
The FAS "nd AS h"ve orDed to i%p#e%ent "ir v"#ue
%e"sure%ent or in"nci"# instru%ents5 The o"rds h"ve
"dopted " piece%e"# "ppro"ch the irst step is disc#osure o
"ir v"#ue inor%"tion in the notes5 The second step is the "ir
v"#ue option, hich per%its, co%p"nies to record so%e
in"nci"# instru%ents "t "ir v"#ues in the in"nci"# st"te%ents5
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8-3
ey &oints
F!S re/uires " to-tiered "ppro"ch to test hether the v"#ue o
#o"ns "nd receiv"b#es "re i%p"ired5 First, " co%p"ny shou#d
#ooD "t speciic #o"ns "nd receiv"b#es to deter%ine hether
they "re i%p"ired5 Then, the #o"ns "nd receiv"b#es "s " group
shou#d be ev"#u"ted or i%p"ir%ent5 GAA& does not prescribe "
si%i#"r to-tiered "ppro"ch5
F!S "nd GAA& dier in the criteri" used to derecogni(e
Bgener"##y through " s"#e or "ctoringC " receiv"b#e5 F!S is "co%bin"tion o "n "ppro"ch ocused on risDs "nd re"rds "nd
#oss o contro#5 GAA& uses #oss o contro# "s the pri%"ry
criterion5 n "ddition, F!S per%its p"rti"# derecognition GAA&
does not5
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8-4
:ooDing into the Future
oth the AS "nd the FAS h"ve indic"ted th"t they be#ieve th"t
in"nci"# st"te%ents ou#d be %ore tr"nsp"rent "nd
underst"nd"b#e i co%p"nies recorded "nd reported "## in"nci"#instru%ents "t "ir v"#ue5 Th"t s"id, in F!S 7, hich "s issued in
27, the AS cre"ted " sp#it %ode#, here so%e in"nci"#
instru%ents "re recorded "t "ir v"#ue, but other in"nci"# "ssets,
such "s #o"ns "nd receiv"b#es, c"n be "ccounted or "t "%orti(ed
cost i cert"in criteri" "re %et5 t h"s been suggested th"t F!S 7
i## #iDe#y be ch"nged or rep#"ced "s the FAS "nd AS continue
to de#iber"te the best tre"t%ent or in"nci"# instru%ents5
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8-0
9nder F!S, #o"ns "nd receiv"b#es "re to be reported on the
b"#"nce sheet "t
"C "%orti(ed cost5
bC "%orti(ed cost "djusted or esti%"ted #oss provisions5
cC historic"# cost5
dC rep#"ce%ent cost5
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8-
n recording the derecognition o " receiv"b#e, or e."%p#e,
"s the resu#t o " "ctoring tr"ns"ction
"C F!S ocuses on #oss o contro#5
bC GAA& ocuses on #oss o contro# "nd risDs "nd
re"rds5
cC F!S "nd GAA& "##o p"rti"# derecognition5
dC F!S "##os p"rti"# derecognition
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